Policy brief

The financial fragility of European households in the time of COVID-19

The concept of household financial fragility emerged in the United States after the 2007-2008 financial crisis. It grew out of the need to understand

Publishing date
02 July 2020

• The concept of household financial fragility emerged in the United States after the 2007-2008 financial crisis. It grew out of the need to understand whether households’ lack of capacity to face shocks could itself become a source of financial instability, in addition to risks to the stability of banks and the greater financial system. The concept goes beyond assessing the level of assets and encompasses the state of household balance sheets, including indebtedness. It relies also on individual perceptions of the ability to rely on families and friends and other methods to deal with shocks, though such aspects are less easy to measure and rely frequently on self-assessments.

• In the wake of COVID-19, we ask how well-prepared households were in the European Union (including the United Kingdom) to handle an unexpected expense. Two years before the pandemic hit, a substantial share of EU households reported that they would be unable to handle unexpected expenses. In some EU countries, many households had savings equivalent to just a few weeks of basic consumption.

• We find that one in three EU households is unable to meet an unexpected shock during regular times, let alone during a pandemic. COVID-19-related support measures put in place across the EU are intended to provide economic help to those households where members have lost jobs or face a severe reduction in income. However, in a number of countries where one in two households was already fragile – typically countries that are already economically weaker – state help is likely to be smaller and shorter-lived. Policies that increase financial resilience in structural ways will become necessary in the future.

• Such policies include financial education programmes in the workplace or initiatives to promote financial resilience among households directly. There are many examples of such policies put in place worldwide that aim to increase structurally the level of financial preparedness and financial literacy. The latter is shown to correlate strongly with financial resilience.

• Our evidence also shows that there are major differences between EU countries in term of financial fragility. This points to different degrees of urgency and also to the need for different policies to promote financial resilience. However, to the extent that financial fragility is a source of financial instability, there is a case for monitoring such indicators at the European level, for example by including a measure of financial fragility in the European Semester as part of the monitoring of Macroeconomic Imbalances Procedure indicators.

Recommended citation

Demertzis, M., M. Domínguez-Jiménez and A. Lusardi (2020) ‘The financial fragility of European households in the time of COVID-19’, Policy Contribution 2020/15, Bruegel

About the authors

  • Maria Demertzis

    Maria Demertzis is a Senior fellow at Bruegel and part-time Professor of Economic Policy at the Florence School of Transnational Governance at the European University Institute. She was Bruegel’s Deputy Director until December 2022. She has previously worked at the European Commission and the research department of the Dutch Central Bank. She has also held academic positions at the Harvard Kennedy School of Government in the USA and the University of Strathclyde in the UK, from where she holds a PhD in economics. She has published extensively in international academic journals and contributed regular policy inputs to both the European Commission's and the Dutch Central Bank's policy outlets. She contributes regularly to national and international press and has regular column that appears twice a month in various EU newspapers and on Bruegel’s opinion page.

  • Annamaria Lusardi

    Annamaria Lusardi is the Denit Trust Endowed Chair of Economics and Accountancy at the George Washington University School of Business (GWSB). Moreover, she is the founder and academic director of GWSB’s Global Financial Literacy Excellence Center (GFLEC). Previously, she was the Joel Z. and Susan Hyatt Professor of Economics at Dartmouth College, where she taught for twenty years. She has also taught at Princeton University, the University of Chicago Harris School of Public Policy, the University of Chicago Booth School of Business, and Columbia Business School. From January to June 2008, she was a visiting scholar at Harvard Business School. She holds a Ph.D. in Economics from Princeton University and a BA in Economics from Bocconi University in Milan, Italy.

    Dr. Lusardi has won numerous research awards. Among them is the 2018 Oscar and Shoshana Trachtenberg Prize for Faculty Scholarship, the 2017 Skandia Research Award on Long-Term Savings (awarded in Sweden), the 2015 Financial Literacy Award from the International Federation of Finance Museums (awarded in China), the 2013 William E. Odom Visionary Leadership Award from the Jump$tart Coalition for Personal Financial Literacy, and the 2007 Fidelity Pyramid Prize, an award to authors of published applied research that best helps address the goal of improving lifelong financial well-being for Americans.  Dr. Lusardi chairs the OECD/International Network on Financial Education’s Research Committee. She was recently appointed by the Italian Minister of Economy and Finance as Director of the Financial Education Committee in charge of designing Italy’s national strategy for financial literacy. In 2009, she served as a faculty advisor for the Office of Financial Education of the U.S. Treasury.

  • Marta Domínguez-Jiménez

    Marta Domínguez Jiménez was a Research Analyst at Bruegel. Her research focuses primarily on monetary policy, financial systems and international trade and capital flows. She has published on these issues for Bruegel, in academic journals and European Parliament and Commission reports, among others.

    She holds a bachelor from the University of Oxford, where she specialised in international macroeconomics and monetary economics, and a Master's from the College of Europe in Bruges. Before joining Bruegel, she was an Analyst within the Markets division of Citigroup in London, where she worked on the structuring of bespoke fixed income products and developing systematic quantitative investment strategies.

    Marta is fluent in Spanish and English, and proficient in German and French

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